Unusual Covered Call Opportunity In Deere & Company
According to Options and Volatility, shares of Deere & Company (NYSE: DE) saw unusually high options activity on Thursday. Notably, the August 95 calls traded 10.208 contracts versus only 1.756 open interest. The July 95 calls traded 7,530 contracts as well, versus only 1.964 open interest.
With volume exceeding open interest, the large buyer of these calls is initiating a new position rather than closing out an existing position.
In addition to the increased volume, the implied volatility on the August 95 calls rose dramatically, moving from 17.11 on Wednesday's close to 18.64 on the close Thursday. With shares of Deere unchanged on Thursday, the August 95 calls rose 14 percent, from 1.91 on Wednesday to 2.18 on Thursday, due to the increased buying pressure.
This set up a covered call opportunity looking to capture the Implied volatility spike, buying shares of Deere & Company and selling a August 95 call for each 100 shares purchased.
Options and Volatility noted this captures a 0.27 edge and positions bullishly along with the large call buyer.
The August 95 calls have a delta of 42 while the covered call position has a slightly more bullish delta of 58.
Shares of Deere & Company closed at 94.00, unchanged on the Thursday. The stock is trading up on Friday.
Disclosure: The author had a long position in DE at the time of publishing.
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